C.K.

Tang: The Fight towards Privatisation

C.K. Tang: The Fight

towards Privatisation
Case Overview
In 2009, Tang Wee Sung, the majority shareholder of C.K. Tang Limited,
along with his brother, Tang Wee Kit, finally succeeded in privatising
the company after two failed attempts in 2003 and 2006. The major
controversy surrounding the privatisation was the valuation of Tangs
Plaza, a commercial property located in the prime shopping district of
Orchard Road. Minority shareholders cited its undervaluation as the
primary reason for rejecting the cash offer by the Tang brothers. The
minority shareholders felt that the redevelopment potential of the property
should have been taken into consideration. In 2011, the Tang brothers
failed in their attempt to cancel out all remaining shares held by minority
shareholders through a capital reduction exercise. The objective of this
case is to allow a discussion of issues such as the divergence of interests
between controlling and minority shareholders, the manifestation of
this divergence in a privatisation situation, the different methods of
privatisation which can be used and the extent to which they protect
the interests of minority shareholders, and the role of the board, audit
committee, independent financial adviser, regulator and shareholders in
a privatisation.

This is the abridged version of a case prepared by Chew Yi Ling, Goh Theng Hoon and Thomas Sim Joo Huat
under the supervision of Professor Mak Yuen Teen. The case was developed from published sources solely for
class discussion and is not intended to serve as illustrations of effective or ineffective management. Consequently,
the interpretations and perspectives in this case are not necessarily those of the organisations named in the case,
or any of their directors or employees. This abridged version was prepared by Koh Kian Sin under the supervision
of Professor Mak Yuen Teen.

Copyright © 2012 Mak Yuen Teen and CPA Australia

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 C.K.Tang: The Fight towards Privatisation

About C.K. Tang

C.K. Tang Limited is a Singapore-based company founded by Tang
Choon Keng in 1932. The company is in the business of departmental
store retailing and general merchandising. Since 1958, the company
has been operating at its flagship building, Tangs Plaza, along Orchard
Road1. C.K. Tang is a company characterised by the presence of a major
controlling shareholder. For example, in June 2003, then CEO-Chairman
Tang Wee Sung, the second son of the founder, owned 69.95 per cent of
the company’s shares2.

In 1975, C.K. Tang was listed on the then Singapore Stock Exchange,
which later became the Singapore Exchange (SGX)3. However, since
2003, the Tang family had been trying to delist and privatise the
company4. After two failed attempts, the Tang family finally succeeded
and the company was delisted on 24 August 20095.

In 2011, C.K. Tang made an offer to about 500 minority shareholders who
had held on to the shares of the delisted company. This offer represented
a 15 per cent premium over its fair value and well above the price offered
to other shareholders for the delisting in 2009. However, some of these
minority shareholders were still unwilling to take up the share buyback
offer, and were holding out for a better offer6.

Board of Directors
During the third and successful privatisation attempt, the board of C.K.
Tang was chaired by Ernest Seow, a former PricewaterhouseCoopers
(PwC) partner. Apart from Seow, there were three other directors with
experience in accounting, business management and the retail industry.
Among the four directors, three of them were serving as non-executive
independent directors.

During the company’s history, there was at least one Tang family member
on the board7. However, in 2008, Tang Wee Sung, CEO and the majority
shareholder of the company since 19878, stepped down from the board,
after he was alleged to be involved in an illegal organ trading scandal.

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C.K.Tang: The Fight towards Privatisation

With this development, for the first time in the company’s history, there
was no Tang family member on the board.

According to C.K. Tang’s Corporate Governance Report in 2009, the

board would be responsible for enhancing long-term shareholder value
and the overall management of the Group. This includes reviewing the
Group’s performance, approval of corporate strategies and promoting
high standards of corporate governance. The board delegated some
of its functions to the board committees, namely the audit committee,
nominating committee and remuneration committee.

First Privatisation Attempt: Scheme of Arrangement

On 29 October 2003, Tang Wee Sung offered minority shareholders
S$0.42 per share via a scheme of arrangement9. This represented a
premium of about 35 per cent above the average closing price over the
last five trading days10. This price also meant a 19.2 per cent discount
against the company’s net tangible assets as at 30 September 200211.
However, the resolution failed to pass, as the shareholders felt the
offer price was too low and wanted more information on the company’s
prospects12.

Second Privatisation Attempt: Unconditional Cash Offer

In December 2006, Tang Wee Sung and his brother Tang Wee Kit,
offered shareholders S$0.65 per share through Kerith Holdings13, a
company equally controlled by the brothers. This second attempt was in
the form of a voluntary unconditional cash offer14. The S$0.65 per share
offer reflected a 16.1 per cent premium to C.K. Tang’s latest closing price
at that time. It also represented a 9.4 per cent premium to the company’s
net asset value, based on its annual report for the financial year
ending 31 March 200615. When the offer deadline expired, insufficient
acceptances had been received16. The reason was widely believed to be
the undervaluation of the commercial property Tangs Plaza17. As a result,
the company continued its listing on SGX.

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 C.K.Tang: The Fight towards Privatisation

On 15 July 2008, at an Annual General Meeting (AGM), minority

shareholders questioned the board about the company’s financial
losses, as well as its plans to delist the company from SGX. The board
declared that a privatisation exercise is solely the decision of the majority
shareholder. The board said it owed a fiduciary duty to shareholders,
which is to look after the business of the company.18 Attempts to vote
against standard resolutions such as advance payment of directors’ fees
were defeated, because of the Tang family’s majority holdings19.

Third Privatisation Attempt: Voluntary Delisting

On 8 May 2009, the Tang brothers made their third privatisation attempt
through an investment holding vehicle, Tang UnityThree, which submitted
a delisting proposal to the company. The remaining shareholders were
offered S$0.83 per share20, which represented a 22 per cent premium
over the company’s last traded share price of S$0.68 prior to the offer,
and a 21 per cent discount to the firm’s net asset per share price of
S$1.05 as of 31 December 200821. The board recommended that the
minority shareholders accept the offer, based on an evaluation of the
offer provided by the independent financial adviser PwC22.

At an Extraordinary General Meeting (EGM) held on 31 July 2009,

minority shareholders questioned if the offer was reasonable, given that
the shares had closed at a price above the offer at that point in time.
Nonetheless, the board retained its recommendation, saying that market
prices typically varied23. This was despite earlier statements by the Tangs
saying that the privatisation offer was to allow shareholders to monetise
the value of their investments at a premium over its historical trading
prices24.

Shareholders also reproached the directors for failing to clarify with

the Tangs about their redevelopment plans for Tangs Plaza after its
privatisation. They expressed disappointment with the independent
directors, saying that they had insufficiently analysed the issue.

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C.K.Tang: The Fight towards Privatisation

Doubts were raised about the independence and neutrality of the CEO
of the company at the time, Foo Tiang Sooi, because he was personally
related to Tang Wee Sung. Foo had worked under Tang from 1999 to
2006. He and Tang were also former schoolmates25. However, he
dismissed these facts as irrelevant26. Foo also added that he was related
to the shareholder who posed the question, but this fact was irrelevant
as well27.

Another shareholder called for a vote of no-confidence against the

board chairman. After consulting with legal advisors, the board rejected
the motion, with the chairman saying that the action was an attempt to
frustrate the meeting28. Even as shareholders tried to probe further, the
chairman called for the vote to be taken29. The resolution to privatise
the company was passed with 96.25 per cent of votes in favour of the
proposal30.

Key Area of Controversy: Tangs Plaza

The Singapore Code on Takeovers and Mergers (the Code) governs all
takeover activity in Singapore involving public companies. Under Rule
26.2(a) of the Code, “a property which is occupied for purposes of the
business must be valued at the open market value for its existing use”.
However, Rule 26.2(c) provides for the case in which “such a property is
valued for an alternative use. For such a case, the costs of conversion
and/or adaptation should be estimated and shown” 31.

During all three privatisation attempts by the Tang brothers, the offer
price reflected an undervaluation of Tangs Plaza32. The board stood by
its stand of valuing the property according to its “existing use”, as there
was no intention of deviating from it. One investor had brought up the
fact that in C.K. Tang’s 2007 annual report, a property valuation report
had taken into consideration the redevelopment potential of Tangs Plaza.
In response, the board’s legal adviser, Yeo Wee Kiong, said it was not
legally required to put a redevelopment valuation on the report33.

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 C.K.Tang: The Fight towards Privatisation

PwC stated that the property was valued at S$340 million on 25 May
200934. This was much lower than other nearby sites. In contrast, minority
shareholders contested that the site was easily worth at least S$400
million, according to an independent valuer. This value did not take into
account the potential value arising from redeveloping the site, and did
not consider the potential value from sub-dividing the site into small retail
units and leasing them to specialty tenants35. The board, however, stated
that regulators had told the directors that any such redevelopment was
not applicable36.

Unhappiness Amongst Minority Shareholders

Several shareholders were unhappy about the perceived undervaluation
of the Tangs Plaza site, as well as the fact that the offer price was less than
the company’s net asset per share. Thus, they met with the Securities
Investors Association (Singapore) (SIAS)37. SIAS stated that it objected
to the exit price and that the minority shareholders had been treated with
no dignity38. SIAS had also called for regulators to intervene39.

Ten shareholders had also signed a petition to SGX and the Ministry of
Finance questioning the basis of the valuation on the property’s “existing
use”40, in a bid to convince the regulators to allow them to obtain an
alternative valuation report41. SGX’s reply was that C.K. Tang’s move to
delist was purely commercial, and that the company had complied with
the listing and delisting rules42.

The Capital Reduction Exercise

On 19 August 2011, C.K. Tang embarked on a capital reduction exercise
to cancel out all remaining shares held by minority shareholders. C.K.
Tang would pay each investor S$1.30 per share, which represents an
increase of 56.6 per cent on the exit offer in 2009. PwC had indicated that
the S$1.30 offer is 15 per cent above its fair market value43. The rationale
behind the exercise was to reduce administrative burdens. Additionally,
the company reaffirmed that there are no plans for the redevelopment of
Tangs Plaza, and the buyout had no hidden agenda.

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C.K.Tang: The Fight towards Privatisation

However, only 39 per cent of the minority shareholders in attendance

agreed to the price for the share buyback, far below the 75 per cent
required. Some minority shareholders cited the undervaluation of the
Tangs Plaza property as the reason for rejecting the offer44. C.K. Tang
would have to do more to convince these shareholders for the buyout to
succeed.

Discussion Questions
1. In cases of companies where there are controlling shareholders,
explain why the interest of controlling and minority shareholders may
diverge, using the CK Tang case as an example.

2. Should independent directors be primarily concerned with the

interests of the minority shareholders?

3. Evaluate the independence of C.K. Tang’s board during the third

privatisation attempt. Do you think this affected the actions of the
board during the privatisation process?

4. Do you believe that the basis of valuation was fair? Explain.

5. With regards to the privatisation episode, suggest improvements that

would help protect minority shareholders in the future.

6. C.K. Tang used three different privatisation methods. Explain how

these different methods work and the pros and cons of these different
methods from the viewpoints of the shareholder(s) wanting to take a
company private versus minority shareholders who may prefer that
the company remain listed.

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